Question

Based on the following information of Neon Ltd., answer the questions given below in relation to the Cash Flow Statement of the company for the year 2022-23.

Particulars	31/03/2023 (₹)	31/03/2022 (₹)
Provision for Tax	80,000	50,000
7% Debentures	8,00,000	3,00,000
Unclaimed Dividend	6,000	-
Plant & Machinery (at book value)	1,00,000	1,00,000
Land	4,50,000	6,00,000

Note: Dividend proposed in the years 2021-22 and 2022-23 were ₹30,000 and ₹40,000 respectively.

Additional information:

During the year 2022-23, the company:

1. 1. Provided ₹75,000 for tax.
   2. Issued 7% Debentures at a discount of 5%.
   3. Purchased Plant & Machinery for ₹40,000.

1. What is the amount of tax paid by the company?
2. Give the reason for the opening book value and closing book value of Plant & Machinery remaining the same, despite the purchase of a machine during the year.
3. What is the inflow of cash from the issue of 7% Debentures?
4. Give the company’s outflow of cash for dividend paid to the shareholders.
5. State with reason whether Neon Ltd. will consider the decrease in the amount of land as an Operating Activity or as an Investing Activity, while preparing its Cash Flow Statement.

Answer 1

(i) Calculations of Tax paid by the company:

Dr.	Provision for Taxation Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Bank A/c (Tax paid) (Balancing figure)	45,000	By Balance b/d	50,000
To Balance c/d	80,000	By Statement of Profit & Loss	75,000
	1,25,000		1,25,000

Tax paid by the company = ₹45,000

(ii)

Dr.	Plant & Machinery Account		Cr.
Particulars	Amount (₹)	Particulars	Amount (₹)
To Balance b/d	1,00,000	By Statement of Profit & Loss (Depreciation) (Balancing figure)	40,000
To Bank A/c (Purchase made)	40,000	By Balance c/d	1,00,000
	1,40,000		1,40,000

Depreciation charged on plant and machinery is equal to the value of plant & machinery purchased; thus, the opening book value and the closing book value of plant & machinery remain the same, despite the purchase of a machine during the year.

(iii) Value of debentures issued = ₹8,00,000 − ₹3,00,000 = ₹5,00,000

Since debentures were issued at a 5% discount.

Cash inflow from issue of debentures = ₹5,00,000 − (₹5,00,000 × 5%) = ₹4,75,000

(iv)  Outflow of cash for dividend paid to the shareholders = ₹30,000 − ₹6,000 (Unclaimed dividend) = ₹ 24,000

(v) The Neon Ltd. will consider the decrease in the amount of land as on Investing activity because land is a type of asset that can never be depreciated; thus, a decrease in the value of land will be considered as a sale of land and it will be shown under the head of investing activity as proceeds from the sale of land.